Quiz #1 Flashcards
It enhances the value and usefulness of the financial statements.
Auditor’s opinion
The primary function of an independent audit is to ________ to the financial statements prepared by an entity.
lend credibility
It is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between these assertions and established criteria.
Audit
Auditing proceeds by the means of ordered and structures series of steps.
Auditing is a systematic process
These are the representations made by an auditee about economic actions and events.
Assertions
The auditor should conduct the audit without bias.
An audit is conducted objectively.
An asset or liability exists at a given date.
Existence
An asset or a liability pertains to the entity at a given date.
Rights and obligations
A transaction or event took place which pertains to the entity during the period.
Occurrence
There are no unrecorded assets, liabilities, transactions, or events, or undisclosed items.
Completeness
An asset or liability is recorded at an appropriate carrying value.
Valuation
A transaction or event is recorded at the proper amount and revenue or expense is allocated to the proper period.
Measurement
An item is disclosed, classified, and described in accordance with the applicable financial reporting framework.
Presentation and disclosure.
It involves examining records or documents, whether internal or external, in paper form, electronic form, or other media, or a physical examination of an asset.
Inspection
It consists of looking at a process or procedure being performed by others.
Observation
It represents audit evidence obtained by the auditor as a direct written response to the auditor from a 3rd party (the confirming party), in paper form, electronic or other medium.
External Confirmation
It consists of checking the mathematical accuracy of documents or records.
Recalculation
It involves the auditor’s independent execution of procedures or controls that were originally performed as part of the entity’s internal control.
Reperformance
It consists of evaluations of financial informations made by study of plausible relationship among both financial and non-financial data.
Analytical Procedures
It also encompass the investigation of identified fluctuations and relationships that are inconsistent with other relevant information or deviate significantly from predicted amounts.
Analytical Procedures
It consists of seeking information of knowledgeable persons, both financial and nonfinancial, within or outside the entity. It is used extensively throughout the audit in addition to other audit procedures.
Inquiry
3 Types of Audits
- Financial Statement Audit
- Compliance Audit
- Operational Audit
This is an audit conducted to determine whether the financial statements of an entity are fairly presented in accordance with an identified financial reporting framework.
Financial Statement Audit
It involves a review of an organization’s procedures to determine whether the organization has adhered to specific procedures, rules or regulations.
Compliance Audit
It is a study of a specific unit of an organization for the purpose of measuring its performance. The main objective of this type of audit is to assess entity’s performance, identify areas for improvements, and make recommendations to improve performance.
Operational Audit
These are independent CPAs who offer their professional services to different clients on a contractual basis. External auditors are the ones who generally perform financial statements.
External Auditors
They are entity’s own employees who investigate and appraise the effectiveness and efficiency of operations and internal controls. Their main function is to assist the members of the organization in the effective discharge of their responsibilities.
Internal Auditors
They usually perform operational audits.
Internal Auditors
These are government employees whose main concern is to determine whether persons or entities comply with government laws and regulations.
Government Auditors
They usually conduct compliance audits.
Government Auditors
The opinion expressed by the auditor when the auditor concludes that the financial statements are prepared, in all materials respects, in accordance with the applicable financial reporting framework.
Unqualified Opinion
It is expressed when the auditor concludes that an unqualified opinion cannot be expressed but that the effect of any disagreement with management, or limitation on scope is not so material and pervasive as to require an adverse opinion or a disclaimer of opinion.
Qualified Opinion
It is expressed when the effect of disagreement is so material and pervasive to the financial statements that the auditor concludes that a qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statements.
Adverse Opinion
It is expressed when the possible effect of a limitation on scope is so material and pervasive that the auditor has not been bale to obtain sufficient appropriate audit evidence and accordingly is unable yo express an opinion on the financial statements.
Disclaimer of Opinion
For practical reasons, auditors do not examine all evidence available. Many audit conclusions are made by examining only same of evidence.
The use of testing/sampling risk
It involves the application of audit procedures to less than 100% of items within an account balance or class of transactions such that all sampling units have a chance of selection.
Audit sampling
The work undertaken by the auditor to form an opinion is permeated by judgment.
Error in application of judgment/non-sampling risk
Some evidence supporting the financial statements must be obtained by obtaining oral or written representations from management.
Reliance on management’s representation
It consists of all the policies and procedures adopted by the management of an entity to assist in achieving management’s objective of ensuring.
Internal control system
Evidence obtained by the auditor does not consist of “hard facts” which prove or disprove the accuracy of the financial statements.
Nature in evidence
The reliability of audit evidence is increased when it is obtained from ______ source outside the entity.
independent
Users of financial information are usually prevented from directly assessing the reliability of the information.
Remoteness
Misleading financial information could have substantial economic consequences for a decision maker.
Financial consequences
